Indonesia stocks keep rally going ahead of vote results

Indonesia's stock market and currency rallied ahead the expected announcement of the country's new leader on Tuesday as markets shrugged off warnings of alleged cheating by one of the presidential candidates.

The benchmark Jakarta Composite index rose nearly one percent while the rupiah tacked on 0.5 percent against the greenback to a more than one-week high on Monday after individual tallies from the General Elections Commission (KPU) on Sunday declared Jakarta Governor Joko Widodo victorious with 53 percent of the vote, as reported by the Jakarta Globe on Monday.

The rise in stocks came despite news over the weekend that rival candidate Prabowo Subianto accused the Commission of failing to investigate wide-spread cheating at the polls. Subianto, who has been trailing in exit polls to Widodo, warned that he won't accept the election results and suggested that officials recount results from 5,802 polling booths around Jakarta.

The ex-general of the country's armed forces also said that 10,000 of his supporters may visit the Commission's office on Tuesday, sparking fears of social unrest.

Spokesmen of Subianto's Gerindra party have said that the party will take the result to the constitutional court for review, which could further delay confirmation of the country's next leader.

The first 'litmus test' for Indonesia's new leader

The appointment of the cabinet is the first thing that investors will be looking out for after the election, says Andrew White, Managing Director, American Chamber of Commerce in Jakarta.

"We are likely to see [election] results contested, which could lead to at least another month of uncertainty as the process runs out in courts,' said Ryan Huang, market strategist at IG.

That could hurt the rally in Indonesian stocks, which are up nearly 20 percent year-to-date on hopes of a Jokowi win. The benchmark index hit a one-year high of 5,165 points on July 10, a day after Indonesians went to the polls.

Meanwhile, the rupiah which has strengthened 5 percent since January could see a sell off if Subianto's claims do reach the courts, warned Jeffrey Halley, senior manager of FX trading at Saxo Capital Markets.

"The dollar-rupiah rate could move back up towards 12,000 and most likely stay there until there's actually a clear result out," he said on CNBC's "Street Signs Asia." That would mark a 4 percent loss from current levels.

However, not everyone was concerned about Subianto's last-minute tensions with analysts at Citi Economics predicting that a peaceful resolution was still on the cards.

John Caparusso, MD & Head of Banks Research at Standard Chartered Bank, says the country's new banking bill is "a normal part of risk management."

"Although it is possible that the results will be disputed to the constitutional court, the tensions do not have momentum in our view. We also do not expect any constitutional court ruling to materially change the outcome of the elections."

In response to Subianto's accusations, the Election Commission has stated that they see no reason to delay the announcement of official results.

In any case, IG's Huang notes that a pullback is definitely on the cards for Indonesia's markets, whether or not official results are delayed.

"As the [election] euphoria fades, investors will increasingly realize that there have yet to be any concrete signs that growth will be revived in the short term, and are likely to take profit. A pullback could also be fuelled by the tapering of QE3, scheduled to end in October, the same time the new Indonesian administration takes over," he said.